Why I’m Buying Argentina Farmland

Consumer price inflation in the most southern South American country is steaming, running officially at 10.5% annually. Unofficially, inflation is approaching full-boil at 20%.

That inflation, in turn, is rapidly devaluing the local currency.

At the beginning of the year, 4.9 Argentine pesos would get you a dollar. Today, it takes 5.5 pesos. Vetting the unofficial number, I find things are a bit more dire. On the black market (which is the free market), you’ll need eight pesos to buy a greenback.

Most of Argentina’s economic problems begin and end with its lunatic government, led by the Peronist and flaky demagogue Christina Kirchner.

President Kirchner has, at various times during her five-year tenure, ignited hostilities with the British over the Falkland Islands; implemented capital controls; and nationalized YPF, an Argentina-based oil-and-gas subsidy of Spanish energy giant Repsol.

Ms. Kirchner’s latest shenanigans include a threat to withhold $1.4 billion in investor claims related to a 2001 sovereign-debt default.

Kirchner’s bad economics has prompted many foreign investors to seek out friendlier environments.

But I’m not one of them.

Argentina’s government has created a mess. But that mess leads to some amazing opportunities, thanks to depressed asset prices.

We’ve recently recommended one Argentine stock to the High Yield Wealth subscribers. The deep price discount is one of the reasons this investment is so attractive, creating an exceptional opportunity for us to capture yield and share-price appreciation.

The company has a large commercial real estate presence in Buenos Aires through a majority ownership in one of Argentina’s leading real estate development companies.

But the commercial real estate exposure isn’t what makes this company so attractive. What really captured my interest is the company’s farmland holdings.

This company happens to be Argentina’s largest farmland owner, with over 400,000 hectares spread across 34 farms. Sixty-six percent of these hectares are in Argentina; the rest are spread among Brazil, Paraguay and Bolivia. These farms produce a variety of agriculture products – soybeans, sugarcane, corn, wheat, sunflowers, dairy, and beef cattle.

Thanks to Ms Kirchner, and her depressing influencing on Argentina’s financial markets, this farmland company is also dirt-cheap. Its low share price has driven the yield up to 6% and the discount-to-book value to 65%.

A couple years ago, you would have captured a 2% yield and paid three to four times book value for this very same investment.

What’s more, this farmland company is more than an asset play. Its farmland is producing products and generating cash flow for the business and shareholders.

The company has a proven record of growing revenue, cash flow, and land assets. Revenue over the past five years has soared from $41 million to $665 million. Meanwhile, EBITDA per share has grown to $2.88 from $0.25, and book value per share has more than doubled.

Good luck finding a similar discount on a farmland investment in the United States.

Ten years ago you could have bought a hectare of Iowa farmland for around $1,000. Last year, that same hectare would have set you back $8,000 (and prime Iowa farmland is fetching over $15,000 a hectare), according to data from Iowa State University.

Argentina farmland is a bargain in comparison, with the better properties commanding $5,000 a hectare.

If this Argentina farmland play sounds like a bargain, and you want to learn more, I invite you to try my High Yield Wealthinvestment newsletter service. In the February, 2013 issue you’ll find all the details on this amazing opportunity.

To be sure, Christina Kirchner is making life difficult in Argentina, and she’s likely to continue doing so for a while longer. At the same time, she’s unwittingly created an exceptional entry price in an asset with an exceptional long-term outlook.

The good news is that Ms Kirchner won’t be around forever. The bad news is that when she’s gone, so too will be today’s exceptional entry price.

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